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5 Dividends in Peril Right Now

Written by: Jonas Elmerraji10/05/12 - 8:46 AM EDT

Tickers in this article:
INTU WIN PGR HSC POM

BALTIMORE ( Stockpickr) -- Be warned: Your dividend payouts could be in peril this quarter.

Make no mistake, it's a great time to be a dividend investor. Corporate profits and dividend payouts are both making new all-time highs right now, and the dividend yield of the S&P 500 is higher now than it's been for the better part of two decades. But that doesn't mean those income checks are safe.

With so many firms plowing mountains of cash to their investors, so too are a number of companies that can't really afford to. When those names cut their payouts, shareholders should at least be aware. After all, there are few things that can slam stock prices with such certainty as a dividend cut.

Normally, we focus on the other side of the dividends; typically, in this column, I point out companies that look primed to raise their dividends, not cut them. But figuring out which income names to avoid can often be just as beneficial for your portfolio as knowing which ones to buy. We've had a lot of success in pinpointing future gainers by focusing on a handful of metrics, so we'll flip them in reverse to spot potential dividend cuts.

For our purposes, that "crystal ball" is composed of a few factors: namely a leveraged balance sheet and a payout ratio that's high - in some cases higher than the earnings that firms actually brought in for the last couple of years. While those items don't guarantee dividend cuts in the next month or three, they do dramatically increase the odds that management will need to cut payouts to avoid a more serious capital raise.

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Tax season may be approaching, but TurboTax maker Intuit (INTU) still looks likely to announce a dividend cut. That's because while Intuit's TurboTax product -- and other titles like Quicken and QuickBooks -- enjoy an impressive foothold in the accounting software market, they're still facing a lot of competition from free alternatives and more hands-on services. That was enough to pressure shares to a bigger than expected quarterly loss for third-quarter 2012 and it makes a dividend cut look more likely.

Don't get me wrong, there's a lot to like about Intuit. The firm has more cash than debt, and it typically makes up for weak performance in the fiscal second quarter, when the lion's share of tax season revenue hits the books. But growth isn't there. The firm's own free-tax-filing offering has been cannibalizing its premium TurboTax product, as have other free-filing options thanks to the relative ease of Americans' tax returns after the recession.